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MANCHESTER — The city Department of Public Works may have to lay off employees if Mayor Ted Gatsas’ proposed budget is adopted, aldermen were told Tuesday night.

Department of Public Works Director Kevin A. Sheppard said his department could face a retirement severance obligation of $700,000 in 2014-15, as about 20 employees have indicated they may retire. He said that if he is not able to find savings or new revenue sources, he may have to lay off as many as 20 employees to cover the cost.

“For the first time, we have a department head talking about layoffs,” Alderman-at-Large Joseph Kelly Levasseur said. “The mayor said he presented a budget with no layoffs.”

Sheppard said during his presentation that vacancies have put a strain on his department’s ability to provide services, including patching potholes.

Alderman Patrick Long was told DPW could resurface about seven to 10 miles of additional roads if $372,000 Sheppard requested — but wasn’t part of Gatsas’ budget — was restored.

Levasseur, though, said aldermen were being unrealistic if they thought any new employees would be hired, given projected budget shortfalls.

The mayor’s proposed budget includes a request that aldermen work with him to close an unfunded gap of $6 million.

“What we need to start focusing on is generating revenue and maintaining a budget,” Levasseur said.

Alderman-at-Large Dan O’Neil chaired the session in the absence of Mayor Ted Gatsas, who is recuperating following a heart bypass operation. (See story, Page A3)“You’re doing fine up there as a (designated hitter),” Levasseur said to O’Neil.

O’Neil said last week that a state law, RSA 45:13, dictates that he should assume the day-to-day duties of running the city.The law states “whenever the mayor of any city shall be absent or shall be disabled by sickness or otherwise, (the elected chairman) shall have all of the powers and perform all of the duties of the mayor during his absence or disability.”

The mayor’s chief of staff, Samantha Piatt, said last week that Gatsas would handle daily duties from home but would not have a public schedule.